Nigeria: World Bank Flags $12.4bn Gap in Nigeria's External Accounts

The World Bank has identified a $12.4 billion unexplained gap in Nigeria's external accounts in the first half of 2026, warning that it may partly reflect oil export earnings that were not repatriated to the country.

The disclosure came as the Bank reported a sharp rise in state revenues and capital spending, with state governments allocating more funds to roads, agriculture, power and housing.

However, while President Bola Tinubu welcomed the findings as evidence that his administration's economic reforms were yielding results, the Bank warned that poverty and food insecurity remained widespread.

The findings are contained in the World Bank's October 2026 Nigeria Development Update, titled Beyond the Federal Purse: How Higher Revenues Reshaped State Priorities.

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$12.4bn Gap Raises Questions

The report showed that Nigeria recorded a current account surplus of $12.0 billion, equivalent to 7.0 per cent of gross domestic product (GDP), in the first half of 2026, up from $8.6 billion in the corresponding period of 2025.

The Bank attributed the improvement mainly to higher oil prices and lower spending on oil imports.

Net financial inflows added another $6.2 billion. In principle, the surplus and inflows should have strengthened the country's foreign reserves.

Instead, the Bank reported net errors and omissions of -$12.4 billion, an accounting item covering transactions or flows that cannot be fully reconciled in the balance of payments.

It said the gap might partly reflect oil export proceeds that were not repatriated.

"In principle, both current account surpluses and net financial inflows should support reserve accumulation, but large net errors and omissions of -US$12.4 billion in H1 2026 offset much of their combined total, likely reflecting in part oil export proceeds that were not repatriated," the report noted.

The report did not specify how much of the $12.4 billion involved oil earnings, identify any company or provide a breakdown. It also acknowledged that data gaps could have contributed to the figure.

The Bank said the repatriation of export proceeds "remains limited, including due to oil pledges". It also cited weak foreign direct investment (FDI), leaving short-term portfolio investors as a major source of foreign exchange.

Net portfolio inflows rose by 80.8 per cent to $12.2 billion during the period, while direct investment fell by 15 per cent to $2.2 billion.

Gross external reserves increased from $45.5 billion at the end of 2025 to $53.8 billion at the end of August 2026.

However, the Bank warned that reliance on short-term investors could expose the reserves to sudden withdrawals. It added that it had no recent estimate of net reserves, which stood at $34.8 billion at the end of 2025.

The report stated that "FDI remains low and repatriation of export proceeds remains limited, including due to oil pledges, leaving short-term FPI as a major source of FX supply and increasing vulnerability to risk-off outflows".

The Central Bank of Nigeria (CBN) has removed restrictions on international oil companies transferring export earnings abroad and allowed account holders unrestricted access to their dollar balances.

The World Bank described these measures as helpful but did not indicate whether they had increased the repatriation of export proceeds.

Tinubu Hails Economic Reforms

In a statement signed by Bayo Onanuga, Special Adviser to the President on Information and Strategy, Tinubu welcomed the report, saying its findings showed that the reforms were delivering results and putting the economy on a firmer footing.

"These findings confirm that the difficult but necessary decisions to remove the petrol subsidy, unify the foreign exchange market and strengthen fiscal discipline have raised revenues, stabilised the economy and created fiscal space for every tier of government to invest in its people."

The Presidency highlighted the Bank's finding that federation revenues rose by 69 per cent in real terms between 2023 and 2025, with states among the biggest beneficiaries.

It said states used the additional resources to increase capital spending by 151 per cent in real terms, directing much of the money towards roads and other transport infrastructure, agriculture, energy and housing.

It also said 29 of 33 states shifted spending towards economic infrastructure.

Other findings cited by the Presidency included economic growth of 4.2 per cent in the first half of 2026, up from 3.9 per cent a year earlier; a poverty rate that had stabilised for the first time since 2019; and an increase in internally generated revenue in real terms in 31 of 35 states.

Tinubu also noted that 21 states reduced their debt-to-GDP ratios between 2021 and 2025, while public debt was projected to fall from 40.0 per cent of GDP in 2025 to 38.1 per cent in 2026.

Acknowledging that more work remained, particularly in addressing food prices and creating jobs for young Nigerians, the President said the Federal Government would expand cash transfers, which had reached more than 10 million households, and accelerate the rollout of compressed natural gas.

He also urged state governments to use their higher revenues "more prudently" and prioritise health and education.

"I urge state governments to use their higher revenues more prudently and prioritise projects that improve the living standards of Nigerians, and the health and education of our people."

Higher State Spending, Uneven Gains

The World Bank's figures broadly support the Presidency's account of increased state spending.

Aggregate state revenues rose by about 93 per cent in real terms between 2023 and 2025, while federation transfers to states increased by 130 per cent.

Capital spending rose from 48 per cent to 61 per cent of state budgets. Spending on transport increased from about N0.1 trillion in 2021 to about N2.5 trillion in 2025.

The report also found that real social spending per person rose in all but one state between 2022 and 2025.

However, the Bank cautioned that the additional revenue had not fully translated into improved social services.

Education's share of state spending fell from 14.9 per cent to 12.1 per cent between 2021 and 2025, while health's share declined from 7.4 per cent to 7.1 per cent, despite increases in absolute spending on both sectors.

In 26 of the 34 states with available data, expenditure grew faster than revenue. The median increase in spending was about 134 per cent, compared with 79 per cent for revenue. Abia, Kaduna, Benue and Gombe recorded the widest gaps.

Although states' internally generated revenue rose by 55 per cent in real terms, federation transfers still accounted for more than three-quarters of revenue in all but four states.

Only Lagos and Enugu generated enough internal revenue to cover their recurrent costs.

Many states reduced their debt, particularly domestic debt, but the Bank said progress was uneven and debt pressures remained high in some states.

It projected that Nigeria's consolidated fiscal deficit would widen from 3.1 per cent of GDP in 2025 to 3.5 per cent in 2026, as increased state capital spending and pre-election expenditure outweighed gains from higher revenue.

Poverty, Food Insecurity Remain Concerns

The World Bank expects Nigeria's economy to grow by an average of 4.4 per cent between 2026 and 2028, with inflation easing to about 12 per cent by 2028.

It also projects that poverty will decline gradually to 61.1 per cent by 2028.

Although the Bank said the poverty rate had levelled off after rising continuously since 2019, it stressed that it remained high.

It cited a World Food Programme projection that nearly 35 million people could face acute food insecurity during the 2026 lean season.

For the external sector, the Bank recommended lower inflation, continued exchange-rate flexibility, a deeper foreign exchange market and reforms to attract longer-term investment rather than reliance on short-term capital.